Company directors are the most common type of company officer as both private limited companies and public limited companies are required to appoint them. Under the Companies Act 2006, it is a requirement that private companies(such as private limited companies) have at least one director whilst public companies must have at least two directors.
Director appointments are an important aspect of the company formation process in the UK. This article presents a brief overview of the processes for the appointment and removal of directors.
What are company directors?
Company directors are primarily responsible for the success of a company and manage the company's affairs by reference to the company's articles of association or the model articles of association if the company was incorporated using these. A director will take on legal responsibilities for the company and the company finances, and they must act according to the company's constitution, found within the articles of association that were agreed upon on incorporation. The articles outline the directors' duties and powers and a director's primary responsibility is to act in the interests of the company and promote its success by acting in good faith.
How to appoint company directors
As mentioned above, you are required to appoint a company director when incorporating your new company. During the company registration process, the first directors are appointed via a Form IN01 and automatically assume office with the directors' details listed on the statutory register of directors. The company's first subscribers are responsible for the appointment of these first directors.
However, once a company has been incorporated, directors can continue to be appointed and there is no limit on the number of directors a company can have.
In order to appoint subsequent directors, the existing board of directors will need to initiate this process by highlighting the benefits of a new appointment for the company.
In finding a suitable candidate, the directors must ensure that certain legal requirements are met and that the appointment would be in the company's best interests. They can seek legal advice on the prospective director's appointment. Anyone is capable of being a director of a company provided that they are over the age of 16 and are not bankrupt or disqualified by a court from holding a directorship (i.e. on the disqualified directors register). Directors do not have to live in the UK but companies must have a registered office in the UK.
Once a suitable director is identified, the board will need to produce a service agreement that includes details relating to the appointment of the director and their obligations. At a board meeting, the existing directors should ensure they are happy with the terms of the agreement. Under s 228 of the Companies Act 2006, the service contract(s) must be available for inspection at the registered office address.
If it is stated in the service agreement that the director has a period of employment longer than 2 years then the contract itself must be approved by an ordinary resolution of the company’s members.
Aside from the requirement of a service contract, the formal process of appointing directors is determined by the company’s articles of association. These might state, for example, that new appointments require approval by a majority vote of shareholders or that the board can appoint a director which is then approved at the next general meeting. The company is also required to obtain formal ‘consent to act’ from newly appointed directors and secretaries and to ensure they have all relevant information relating to the director, such as a service address and their date of birth.
After the formal appointment of a director, the new director must be reported to Companies House within 14 days. You must also ensure that you update the register of directors’ residential addresses and general register of directors.
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How to remove a company director
The same articles of association that explain the processes for the appointment of directors also detail the processes for the removal of directors. Typically, the articles will state that a director can be removed following a majority of the shareholders of the company or through the consent of the board.
There are many reasons a company may elect to remove a director e.g. when a registered medical practitioner finds that the director is incapacitated and can no longer advance the interests of the company.
Where companies do not make removal explicit (or where they elect to use the statutory route), the Companies Act 2006 permits the shareholders' agreement to remove a director by passing an ordinary resolution at a general meeting (s 168 and 169). For a shareholder to propose a resolution to remove a director, they must give special notice for the board of directors to call a general meeting no earlier than 28 days from receipt of the notice. Shareholders and the director concerned must then be notified of the general meeting and the director should be given the opportunity to make a written response to the proposal that should be circulated where practical. When removing a director it is important to be aware of any rights that might arise as a result of the director’s service contract.
During the meeting, the director should have the opportunity to speak ahead of the vote. If more than 50% (a simple majority) of shareholders vote to remove the director then this is conclusive. In order to formalise the removal of a director, a form TM01 must be completed and sent to Companies House to notify Companies House that the appointment of an individual or corporate director has been terminated. You can do this by sending the form online, posting it or by using a company formation agent.
Conclusion
It is important to get things right the first time for your business and it is therefore crucial you have a collection of robustcontracts in place in order to protect your small business. Having clear contracts not only ensures that you protect your business interests but provides you with a clear audit trail of transactions for your accounting records. Legislate provides lawyer-approved contracts on no legal budget which can be tailored to suit your circumstances in a safe and controlled way.
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The opinions on this page are for general information purposes only and do not constitute legal advice on which you should rely.